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Automobile Exporters Under Pressure as GST Refund Gets Stuck

Industry players said as the current GST system of making payments upfront and claiming input tax credit refund is not functioning properly, the working capital requirement for companies have increased and they could rethink on exports till the issues stay unresolved.

(Image for representational purpose/Reuters)

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Passenger vehicle exports from India have run into GST speed breaker as manufacturers have been unable to file claims since July and pending sum has crossed over Rs 1,000 crore. Industry players said as the current GST system of making payments upfront and claiming input tax credit refund is not functioning properly, the working capital requirement for companies have increased and they could rethink on exports till the issues stay unresolved.

Moreover, Ford India CFO David Schock told PTI that the quantum of cash needed to meet compensation cess of 1-22 percent under GST from 1-4 percent as existed earlier has been a "steep increase". Elaborating on issues faced by automobile exporters, Society of Indian Automobile Manufacturers (SIAM) Deputy Director General Sugato Sen said, "Companies which are exported-oriented are suffering because the current GST system of making payments upfront and claiming the refund is not working properly." It is leading to accumulation of GST credit, which is hurting the exporters, he added. "There are companies whose refund has gone up to hundreds of crores of rupees. It has led to increase in the working capital requirements of the companies, which has made them cautious in exports," Sen said.

In the July-October period, passenger vehicle exports declined by 14.45 percent to 2,35,933 units as compared with 2,75,789 units in the same period of last year. In the same period, total vehicle exports, including two-wheelers and commercial vehicles, rose by 8.07 percent to 13,17,936 units as compared with 12,19,460 units in July- October period of 2016.

While some of the major export markets have slowed down, industry players said the GST refund issue has also played a part in the decline of vehicle exports.

According to an industry source, the pending refund amount of top four-passenger vehicle exporters alone have crossed Rs 1,000 crore so far.

Although Schock did not comment on the amount, he said while the government provided the functionality of refunds, "it is yet to be operationalized (and) because of lack of clarity and processes, companies have not been able to file refund claim from July 2017 until October 2017".

"In case of refund of input tax credit, the absence of a clear procedure and roadmap is another area of concern," he added. He further said, "Exporters now need to allocate significantly more funds due to the revised norms/tax structure and blocking working capital for an extended duration, especially at a time when interest rates are high, doesn't augur well." Expressing similar views, Volkswagen India Pvt Ltd President & Managing Director Andreas Lauermann said, "We are facing challenges since there is no clarity on how refund of GST will be paid on export cars. This has led us to having a lot of credit blocked by the authorities."

Seeking exemption from payment of compensation cess on exports, he said with the increase of cess on cars, the situation has worsened. "Going forward, we could be forced to rethink our exports if these challenges do not get resolved," Lauermann said.

An executive of another major passenger vehicle manufacturer said on the condition of anonymity that the increased working capital to meet exports requirements is putting extra pressure on business. "When a company is made to block Rs 100 crore a month for exports due to the current issues regarding refund and not exactly knowing when will it be refunded, it raises many questions," the executive said. Companies with big domestic sales can still manage it but the pressure is mounting more on the export-oriented manufacturers, Sen added.

Ford India, Volkswagen, General Motors, and Nissan are the top export-oriented manufacturers in India, while Maruti Suzuki and Hyundai are also major exporters but with significant domestic presence.